{"id":59171,"date":"2011-11-17T11:19:50","date_gmt":"2011-11-17T00:19:50","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/11\/17\/lamp-to-shine-for-lynas\/"},"modified":"2011-11-17T11:19:50","modified_gmt":"2011-11-17T00:19:50","slug":"lamp-to-shine-for-lynas","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/11\/17\/lamp-to-shine-for-lynas\/","title":{"rendered":"LAMP To Shine For Lynas"},"content":{"rendered":"

\n\t– Brokers come away impressed from Lynas<\/span> site visit
\n\t– LAMP plant slightly behind schedule but broadly on track
\n\t– Granting of permit the main unknown<\/strong>
\n\t <\/p>\n

\n\t
\n\tBy Chris Shaw<\/p>\n

\n\tLast week FNArena<\/span> noted market coverage on rare earth play Lynas<\/span> Corporation ((LYC<\/span>)) was growing (see: Lynas<\/span> Approaching Blanket Coverage<\/a>) and interest in the stock remains high following a site visit by brokers to the Lynas<\/span> Advanced Materials Plant (LAMP) in Malaysia.<\/p>\n

\n\tWhile progress on construction of the plant has been impressive to date, the project has fallen a few weeks behind early forecasts. In the view of RBS<\/span> Australia this is not overly significant, given the scale and complexity of the project.<\/p>\n

\n\tJP Morgan came away with the view while the magnitude of any further delays is likely to be small, the commissioning schedule to first feed looks tight. This remains reliant on the receipt of a pre-operating licence<\/span>.<\/p>\n

\n\tWhile JP Morgan's view is the public debate over the licence<\/span> has moved in the favour<\/span> of Lynas<\/span> is recent months, it remains possible to forecast when any licence<\/span> will be issued with any confidence. Any delay much beyond the end of the year could create some cash flow issues for Lynas<\/span> in the broker's view.<\/p>\n

\n\tDeutsche Bank agrees, noting while Lynas<\/span> has a solid cash balance and some funding in place, part of this appears to require the granting of the operating licence<\/span> before it can be accessed. This means any capex<\/span> blowouts or production delays could see funds tighten up around the end of 2012.<\/p>\n

\n\tWith respect to the plant itself, Deutsche Bank notes construction is now 85% complete, against 78% as at the end of September. Management at Lynas<\/span> continues to target mid January for first feed to the kiln, while Deutsche's expectation is this will occur in the middle of February. A subsequent ramp-up of operations should take around 60 days.<\/p>\n

\n\tAs RBS<\/span> Australia notes, while the licence<\/span> may not be granted by the end of the year as Lynas<\/span> hopes, the likelihood of it eventually being granted is still quite high. Given this and the current discount factored into the share price leads RBS<\/span> to suggest the risk-reward balance is now a lot more appealing.<\/p>\n

\n\tOn RBS's<\/span> numbers Lynas<\/span> is trading at a 50% discount to net present value, which equates to a flat rare earth price of US$38 per kilogram. By way of comparison, the current spot basket price is US$125 per kilogram.<\/p>\n

\n\tThe current share price implies a FY13<\/span> multiple for Lynas<\/span> of three times, with RBS<\/span> estimating the market is currently factoring in a 15-20% discount for permit uncertainty.<\/p>\n

\n\tWhat acts in the favour<\/span> of Lynas<\/span> with respect to the granting of a permit in the view of JP Morgan is prospective customers are very supportive of the project given the potential for Lynas<\/span> to help diversify market supply away from China.<\/p>\n

\n\tDemand for rare earth elements is expected to remain strong, while JP Morgan sees Chinese marginal costs as continuing to rise. Given Lynas<\/span> has the technical backing of Rhodia<\/span>, one of the pioneers of the rare earth industry, JP Morgan suggests the company will enjoy a significant advantage relative to peers.<\/p>\n

\n\tGiven the site visit left brokers impressed there have been no changes to Buy ratings for Lynas<\/span>. Price targets are also unchanged, the consensus target according to the FNArena<\/span> database standing at $2.24. This implies upside of around 85% relative to the current share price.<\/p>\n

\n\tShares in Lynas<\/span> today are slightly higher and as at 10.55am<\/span> the stock was up 1c<\/span> at $1.21. This compares to a trading range over the past 12 months of $0.857 to $2.70.
\n\t <\/p>\n

\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

A site visit to Lynas’s LAMP facility in Malaysia has reinforced the positive view of brokers on the stock, assuming the Malaysian government plays along.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[23],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59171"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=59171"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59171\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59171"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59171"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59171"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}